China’s outbound acquisitions spree this year helped push Asia-Pacific’s annual deal value past US$1 trillion for the first time, with next year set for a bigger splurge still as Chinese firms buy even more assets abroad to sidestep slowing growth in their domestic market.
Asia-Pacific mergers and acquisitions (M&A) has totaled US$1.2 trillion so far this year, up 46 percent from last year, preliminary data from Thomson Reuters showed, as China rediscovered an appetite for outbound deals after last year’s 20 percent drop.
With private companies like Fosun International Ltd (復星國際) in the vanguard, Chinese firms spent a record US$102 billion so far in this year, the data shows.
As well as economic growth slowing to its weakest pace in years, bankers and analysts say a need to acquire cutting-edge technology to improve manufacturing, environmental issues and a weakening yuan will all help send Chinese firms like chipmakers and agrochemicals suppliers searching for deals overseas next year.
“China is on the move, we are preparing for a busy year for deal making,” said Joseph Gallagher, head of mergers and acquisitions for Asia-Pacific at Credit Suisse.
“Chinese outbound activity is set to pick up with a focus on the semiconductor, power and financial sectors,” Gallagher said.
A strong year for deal-making bodes well for global investment banks in the region. This year, Goldman Sachs was the top adviser, with a 16.7 percent market share — followed by Morgan Stanley and HSBC Holdings — surging from 28th last year after working on a slew of deals from billionaire Hong Kong tycoon Li Ka-shing (李嘉誠).
China, Hong Kong and Australia were the three most active merger and acquisitions markets in the Asia Pacific region, the data showed.
China’s large state-owned enterprises (SOE) played a less active role in such deals this year compared with their mid-2000s heyday as Chinese President Xi Jinping’s (習近平) wide-ranging anti-graft investigations turned several officials cautious about making big decisions, bankers said.
Beijing ardently backs deals in niche areas like semiconductors and agrochemicals, bankers said.
A prime example is state-backed Tsinghua Unigroup Ltd (清華紫光), which plans to invest 300 billion yuan (US$47 billion) over the next five years in a bid to become the world’s third-biggest player in chipmaking, muscling its way into a trio made up of Intel Corp, Samsung Electronics Co Ltd and Qualcomm Inc.
Among the deals that Chinese companies are working on are energy and waste treatment investment firm Beijing Enterprise Holdings Ltd’s (北京控股) pursuit of German waste management company EEW in a deal potentially worth about US$1.8 billion.
Media reports have also said that state-owned China National Chemicals Corp (ChemChina, 中國化工) is weighing a possible bid for European agrochemicals maker Syngenta AG, which has a market value of US$35.1 billion.
ChemChina, as the company is widely known, declined to comment.
China’s weakening currency, forecast to slip a further 5 percent to 7 percent next year, would also encourage more money to leave the nation, analysts say.
This follows a surprise decision by Beijing in August to devalue its currency by 3 percent.
“The weakening yuan coupled with a slowdown in the domestic market is a strong driver for China outbound M&A, factors that had driven Japan outbound M&A for the last five years,” said Mayooran Elalingam, who is head of Deutsche Bank’s Asia-Pacific mergers and acquisitions in Hong Kong.
Bankers also expect more deals among Chinese companies, especially technology firms, as the slower economic growth and intense competition force companies to pursue new avenues for revenue growth.
“The SOE reforms and domestic industry consolidation are the other themes likely play out strongly next year,” said Brian Gu (顧宏地), co-head of China Investment Banking at JPMorgan Chase & Co in Hong Kong.
“As growth shrinks in many sectors, you will see companies moving in to drive consolidation and becoming aggressive in some situations, something which is emerging as a new theme in China,” Gu said.
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